As home prices drop and mortgage payments rise, an increasing number of borrowers are handing in the keys to lenders and walking away from their mortgage.

A new term has been coined for the envelopes that lenders all over the country are receiving from struggling homeowners: jingle mail.

The phrase is used to describe desperate borrowers who are sending their keys back to lenders and walking away from their mortgage obligations. New reports show that this is happening much more frequently as an increasing number of homeowners find they are underwater in their mortgage.

Fitch Rating is claiming that borrowers’ apparent willingness to simply give up on their mortgage has contributed heavily to the high default numbers we are seeing now. On February 1, the company announced they would slash ratings on mortgage debt for this reason.

Does Walking Away Make Sense?

Foreclosure used to be a rare thing, typically resulting from job loss, illness, or a death in the family. But changes in the mortgage industry in recent years have altered the how and why of foreclosure.

Most of the borrowers who are walking away now are doing so because of increasing payments and depreciating assets. There is also the fact that the majority of the borrowers now have nothing to lose–they didn’t put anything down and therefore have very little invested.

Walking away can make sense for them because it can be less costly than going bankrupt in an attempt to save a single asset that is losing value by the day. Of course, this depends heavily upon where the borrower lives.

Different states have different rules for borrowers and lenders. For example, the state laws in California make it difficult for lenders to collect additional money after foreclosing and selling a property. In other states, like Michigan, lenders are allowed to go after the borrower for the difference.

Troublesome for Lenders

Not surprisingly, lenders are disturbed by the jingle mail trend. Wachovia and Bank of America have both discussed the issue in recent conference calls and say there is a definite change in the mindset of borrowers. Wachovia CEO Ken Thompson noted that some of the borrowers had the ability to pay, but weren’t willing to so since they have lost so much equity.

Most of the banks have no real desire to take the homes back as it will be very difficult to recoup all of the money that it is owed. A large number of borrowers overpaid for the home, didn’t put anything down, and didn’t make enough in payments to dent the balance. The chance that banks will break even on these sorts of properties, let alone make a profit, is slim to none.

What Is Happening to the Abandoned Homes?

For the most part, nothing is happening. Vacant homes can be found in nearly every city in America. In the better neighborhoods, the houses sit empty and neighbors take care of the lawn so that their own homes look better. In bad neighborhoods, the houses are sometimes burned out and used for illegal purposes.

There have also been reports of homeless who are taking refuge in abandoned properties. The homeless are outnumbered by vacant houses in many different cities. In Cleveland, for example, there are at least three abandoned houses for every one homeless person.

Brian Davis, the director of the Northeast Ohio Coalition for the Homeless, said the foreclosure crisis is a low-cost (i.e. free) housing option for people who don’t want to sleep outside or take refuge in a shelter. Since many of the abandoned homes still have lights, heat, and running water, they are convenient overnight stops for someone who needs a place to stay.